The U.S. Federal Reserve recently issued a cease-and-desist order against United Texas Bank (UTB), stating that the bank had significant deficiencies in its governance, particularly in its adherence to anti-money laundering (AML) laws and risk management related to virtual currency customers and foreign correspondent banking. This order comes after an examination conducted in May 2023, which revealed shortcomings in board oversight and senior management’s handling of compliance regulations.
The cease-and-desist order obligates UTB to enhance its Bank Secrecy Act (BSA) and anti-money laundering programs. The Federal Reserve has also given the bank’s board of directors 90 days to submit a comprehensive plan that addresses strengthening oversight and revising its customer due diligence program. This enforcement action is part of a broader trend of U.S. regulators targeting financial institutions with ties to the cryptocurrency industry.
UTB had gained prominence after filling the void left by the collapse of Signature and Silvergate in 2023, two of the largest U.S. lenders that previously served the crypto sector. With the closure of these institutions, crypto companies have struggled to find banking partners in the U.S., forcing them to consolidate around the few remaining institutions willing to work with them or seek services offshore. Historically, U.S. crypto firms have faced challenges in securing reliable banking relationships, and enforcement actions by regulators have only exacerbated the situation.
The crackdown on financial institutions serving the cryptocurrency sector has led once crypto-friendly banks to reduce their involvement. For example, New York-based Metropolitan Bank began scaling back its crypto services last year, including cutting ties with major clients like Crypto.com. This trend of regulatory scrutiny and enforcement actions is reshaping the landscape for crypto companies seeking banking services in the U.S.
The cease-and-desist order against United Texas Bank highlights the growing regulatory pressure on financial institutions with connections to the cryptocurrency industry. The deficiencies in governance identified by the Federal Reserve serve as a warning to other banks serving similar clientele to ensure compliance with AML laws and risk management regulations. As the regulatory environment continues to evolve, crypto companies must be prepared to adapt to changing banking relationships and stricter oversight from regulatory authorities.